In the financial markets, many market participants implement investment strategies that require computerized trading engines that execute trades autonomously based on the most-up-to-date, or real time, market data. These trades are often executed in milliseconds after receiving the market data and, in some instances, a few milliseconds can be the difference a winning trade and a losing trade. One of the factors that contributes to the delay is the latency, or time interval, between (a) when the trading engine sends a trade order to the exchange and (b) when the trade order is acknowledged and acted upon by the exchange.
FIG. 1a is a simplified diagram of a known trading architecture. The client trading engine 10 receives the market data, analyzes it, and based thereon sends a trade order over a Wide Area Network (WAN) 12 to a Direct Market Access (DMA) trading engine 14 that is hosted by a registered broker/dealer. The DMA trading engine 14 performs risk checking and order validation on the trade order and, if the order is not rejected, sends it over another WAN 16 to the exchange server 18, where the trade is executed. The exchange server 18 then sends a report back to the DMA trading engine 14 for the trade order. The DMA trading engine 14 then performs a variety of post-trade risk checks.
In such an architecture, the order is sent over two WANs 12, 16, and through a number of firewalls. Also, the client trading engine 10 and the DMA trading engine 14 typically communicate using a different communication protocol than the DMA trading engine 14 uses to communicate with the exchange data center 18. Thus, the DMA trading center 14 must also convert the order from one protocol to another, adding to the latency.
The client trading engine 10 is also in communication with the client data center 22, so that the client data center 22 can track the trades executed by the client trading engine 10.
Another known architecture is for the client trading engine 10 to submit orders directly to the exchange servers 18 via the WAN 12, as shown in FIG. 1b. This architecture has the advantage of reduced latency, but there is no pre-trade risk checking in this architecture (except for pre-trade risk checks performed by the client, if any) after the order is sent from the client trading engine 10 and before the order gets to the exchange servers 18. Post-trade risk checking is performed in this scenario after the trade is submitted to the exchange by a data center 26 in communication with the exchange server 18 via a WAN 23.